On The Money Grain Commentary–4-7-11

Corn Outlook:

     Old crop corn futures surged to a record high this week because of tight stocks and the expansionary monetary policy held by the Federal Reserve.  At present, the money supply tips $2.4 trillion.  Recently, the Fed’s stated that commodity price gains were not the result of their monetary policy, but rather the impact of a growing world economy.  Does this sound like political buck-passing?  Meanwhile, China just raised interest rates by one-quarter point.  In other developments, the USDA is expected to lower their ending stocks estimate tomorrow.  Export inspections were 39.1 MB and below the average needed to reach USDA’s projection of 1.950 BB.  Last week, the trend following funds added 25 MB to their long position, increasing it to 1.165 BB.  The longs of the index funds rose 15 MB to 1.920 BB.  Right now, traders are focused mainly on weather and planting progress.   

     Since bottoming last week at 667, July corn has risen 17.0 percent to 781.  We are due for a short-term top in which there could be a 3-5 day correction to 752 or 737.  Upon completion, the market will be in a position for a rally to 795 with a more bullish pattern pointing to 825 or 840.  Cycle analysis shows this occurring as soon as mid April, although the wave pattern indicates that it will likely be closer to the third week of the month, and no later than the second week of May.  Meanwhile, the longer-term pattern reveals that we are in the mature stage of the advance from the contract low at 374.5 in which a major top is likely.  In addition, the pattern on the CRB Index chart points to a potential long-term top developing in commodities during May or June, and no later than October.  Next week, the odds are 55 percent that July futures will be lower. 

Bean Outlook:

            Soybeans futures have been pressured from the harvest gaining momentum in South America and slowing demand from China.  Export inspections last week were in the lower range of estimates at 23.0 MB, but above the average needed to reach USDA’s projection of 1.590 BB.  China took 12.9 MB or 56 percent of the shipments.  This was the smallest quantity taken by them since early January.  In other developments, the trend following funds sold 25 MB last week, reducing their long position to 495 MB.  The longs of the index funds rose slightly to 805 MB.  Right now, the primary concern among traders is the need for sufficient acres to be planted to offset the drawdown in domestic stocks.       

     July soybeans have been in a correction since peaking on March 31st at 1442.25.  Support is at Thursday’s low of 1372.5 followed by 1348.  Unless there is a close below this level, the trend is up with the potential for a rally past the contract high at 1474.5 to 1510, 1550, or possibly as high as 1600.  Cycle analysis for a top is not clear, at this time, but one could occur during the third week of April or the first week of May.  Be advised that the long-term pattern of soybeans shows that they are in the advanced stage of their rally in which a multi-month or a multi-year high is forthcoming.  Next week, the odds are 70 percent that July futures will be lower.

 Wheat Outlook:

     Continued dryness in the Plains and deteriorating crop conditions are supporting wheat.  In their first progress report of the season, the USDA rates 37 percent of the wheat crop in good-to-excellent condition.  This is the worst rating since 2002. Texas and Oklahoma were rated at 12 and 16 percent, respectively, in good-to-excellent condition.  Export inspections last week were 29.4 MB and below the average needed to reach USDA’s projection of 1.275 BB.  Although stocks of wheat are adequate, the low rating and strength in corn will underpin prices a while longer.

     July wheat rallied to 835 on Tuesday, which was followed by a swift sell-off to 788 on Thursday.  Last week’s comments mentioned that a rebound to this level was expected.  So far, the pullback resembles a correction, which increases the chance of working higher to 852 or 864 before a top develops that ends the recovery from last month’s low at 691.  This could occur during mid April.  Next week, the odds are 60 percent that July futures will be lower.

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